March 26, 2019
Posted 9:30 AM ET - Yesterday the market probed for support early and buyers stepped in. The price action is choppy and we could be trapped in a range (SPY $278 - $281) for the rest of the week. The news is relatively light and the upward momentum has stalled. Theresa May is going to put the fate of Brexit in parliament's hands. Her plan does not have enough votes and England will ask Europe for a long-term extension. The EU is not likely to grant it unless England holds another referendum. Brits could change their mind and remain in the EU. I believe this possibility has sparked a small round of overnight buying. There will be plenty of "Fed speak" today, but don’t expect anything new. We just had the best possible FOMC statement last week. The Fed is concerned about global economic deceleration and they are dovish. The yield curve inverted briefly on Friday and that sparked selling. The economic news is light and the next big release will come Monday (official PMI's). Next week we will also get ISM services and ISM manufacturing. The jobs report will be released a week from Friday and we will see if the dismal number in February (20K new jobs) was a fluke. Trade negotiations with China continue, but the gaps are wide. A trade deal is not likely before June. Earnings season will start in a few weeks and traders will be watching for warnings. Stocks are at the upper end of their valuation range (forward P/E of 16.5). Good results are expected and surprise favors the downside. Swing traders are short a half position of the SPY. Add the second half if the index trades below $275. We will use a closing stop of $284. I believe that with each series of economic releases the probability of a market decline increases. It will take time for weakness overseas to reach our shores. When it does the profit-taking will be swift. Day traders should prepare for choppy conditions. Buyers and sellers are paired off and the first hour range is likely to hold. Fade the extremes. If by chance we breakout of that range, favor that side and use the breakout as your stop. Intraday ranges have been wide and day trading has been good. Support is at $277.50 and resistance is at $282.50. . .
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